4 Implications of the Recent Government Shutdown

Discerning fact from fiction during the government shutdown and in its aftermath is not a task for the faint of heart. While actual implications of the shutdown and how elected officials choose to proceed in coming months is still to be decided, there is expert commentary on these events, as Dr. David Kelly noted in his recent article A Closer Look at Kicking the Can, which all concerned investors must be aware.

 1.     Another shutdown is unlikely

Government offices closed during the shutdown are currently allocated budget until January 15, 2014. Voices in the investment arena are claiming this will simply lead to another shutdown, but political experts feel otherwise.

According to opinion polls the blame for the recent events is primarily placed on the Republican party. With 2014 being an election year it is unlikely Republicans, or any publically elected officials, will risk the political implications of another shutdown.

2.     Additional debt ceiling conversations are also unlikely

The debt ceiling (the amount of debt allowed to be incurred by the US treasury) is extended until February 7, 2014. Similar to the likelihood of another shutdown, most experts agree that conversations about the debt ceiling will also be tabled until after November 2014 elections.

3.     The budget deficit is decreasing

Although some politicians state otherwise, the US economy is showing signs of a strong and positive recovery. In fiscal year 2011 the budget deficit was 8.4% of the GDP. Today the budget deficit is 3.9% of the GDP, and market indicators point to this number continuing to decline.

4.     Estimates of the cost of the shutdown should not be trusted

Standard and Poor’s estimate the government shutdown impacted the US output by $24 billion. However, many disagree with this number. It is generally thought the most significant impacts of the shutdown are primarily indirect, or psychological, rather than direct.

Further many think if the growing US economy and improving global marketplace continue to assert themselves, as they were prior to the shutdown, the overall impact may ultimately be nominal.

As with all investments it is critical that decisions are made on sound practices and not the emotions of the marketplace or the whims of politicians.

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